How to pay off your mortgage faster
When it comes to selecting a mortgage, we often take a 25 or 30 year mortgage and renew it every 5 to 10 years. But if you would like to save thousands of dollars in interest here are 4 ways to pay off your mortgage faster.
Why pay it off faster? I don’t know about you, but I can certainly imagine a life without a mortgage. This cash can be redirected into investments upgrades, savings or some fun.
There are a few ways to pay down your mortgage faster
1 – Add an extra payment each month
Each month add a set amount to your regular mortgage payment. Even an extra $15 or $25 per payment adds up. For instance, if you pay your mortgage bi-weekly and added an extra $25 per payment, after five years you would have reduced the principal loan by 2.5% over the life of the debt (assuming a 2.85% fixed five-year rate on a $450,000 mortgage amortized over 25 years), for more than $7,350 in savings.
2- Make a lump sum payment
Check your mortgage paperwork, does it allow you to add in an annual lump payment? If so, this lump payment will go directly in the principal and can help you to shave off months, or even years, off the length of the mortgage.
So you are probably thinking, where can you amass funds to make a lump payment. Here are a few ideas of side hustles to help build up the extra funds:
- Freelance your skills
- User testing
- Driving for Uber
- Meal delivery
3- Round up your payment
Just like you round up a payment for your credit card, rounding up a mortgage payment can also help you to crush your mortgage faster.
If your payment is $1,325 a month, by rounding up to $1400 can make a sizeable impact on the length of the mortgage and reduce the amount you will pay in interest. Putting an additional $75 a month takes a commitment as you have other expenses, but you will end up paying off the mortgage faster.
Here is an example of how Rounding up your payment can be beneficial:
Loan amount: $200,000
Loan type: 30-year fixed
Mortgage interest rate: 4%
Monthly mortgage payment: $954.83
Extra payment (monthly): $45.17
Rounding up your payment to $1,000 as opposed to $954.83, over the life of the mortgage you will save $13,606.49 in interest and reduce the length of the mortgage by 2.5 years!
Not bad right?
4- Accelerate your payment
Typically your mortgage payment is once a month, so 12 times a year. But with an accelerated payment you can add in extra payments throughout the year. With the bi-weekly mortgage payment you make 26 payments a year to coordinate with the 26 pay periods in a year.
Yes this approach will cost you a little more on a monthly basis, but will save you thousands in interest and help you pay off your mortgage even sooner.